Fiscal Deficit Financing and Unemployment Rate in Nigeria: An Empirical Investigation

Abstract

This study examines the relationship between fiscal deficits financing and unemployment rate in Nigeria from 1990 to 2022, utilizing time series data from the World Development Indicators and the CBN Statistical Bulletin. The specific objectives are to determine the impact of debt servicing, assess the effect of domestic debt, investigate the influence of external debt, and examine the impact of money supply on the unemployment rate in Nigeria. Data analysis techniques include descriptive statistics, unit root tests, bounds cointegration, the autoregressive distributed lag (ARDL) estimation method, and post-estimation tests. The ADF unit root tests reveal a mix of I(1) and I(0) series, indicating that the variables differ in their levels of integration. The bounds cointegration test confirms a long-term equilibrium relationship among the dependent and independent variables. The ARDL long-run results indicate that debt servicing has a positive but statistically insignificant effect on the unemployment rate; domestic debt has a significant negative relationship with the unemployment rate; external debt has a positive but statistically insignificant effect on unemployment; and money supply has a positive and statistically significant impact on unemployment. Based on these findings, the study concludes that domestic debt positively contributes to reducing unemployment in Nigeria. It is therefore recommended that the government prioritize raising funds through domestic debt markets over external borrowing when financing employment-focused projects. Investments in infrastructure, small business support, and education can create jobs and strengthen the economy’s productive base, thereby sustainably lowering unemployment.